First Quarter of Fiscal Year 2022 - Consolidated Earnings
Highlights
- Revenue of $159.9 million, Up 29% Year-Over-Year
- Net Loss of $45.4 million
- Adjusted EBITDA* of $(44.0) million
First Quarter of Fiscal Year 2022 - Segment
Highlights
Senior
- Revenue of $106.3 million, Up 45% Year-Over-Year
- Adjusted EBITDA* of $(33.0) million
- Approved Medicare Advantage policies grew 98%
Year-Over-Year
Life
- Revenue of $49.8 million, Up 16% Year-Over-Year
- Final expense premiums grew 72% Year-Over-Year
Auto & Home
- Revenue of $7.5 million, Down 22% Year-Over-Year
- Total Auto & Home premiums declined 22% Year-Over-Year
SelectQuote, Inc. (NYSE: SLQT) reported consolidated revenue for
the first quarter of fiscal year 2022 of $159.9 million, which was
a 29% increase over consolidated revenue for the first quarter of
fiscal year 2021 of $124.2 million. Consolidated net loss for the
first quarter of fiscal year 2022 was $45.4 million, which
represents a decrease in consolidated net income of $46.2 million
over consolidated net income for the first quarter of fiscal year
2021 of $0.8 million. Finally, consolidated Adjusted EBITDA* for
the first quarter of fiscal year 2022 was $(44.0) million, compared
to consolidated Adjusted EBITDA* for the first quarter of fiscal
year 2021 of $12.1 million.
Chief Executive Officer Tim Danker commented, “SelectQuote began
2022 with strong results that were ahead of internal expectations,
and our full year guidance remains unchanged. We are particularly
pleased with the early progress of our Population Health business.
That progress validates our belief in the significant value
creation potential, not only for our patients and carriers, but
also for our shareholders. SelectRx continues to excel, with daily
enrollments now over 7 times higher than the rate of enrollment at
the time of our acquisition. In sum, SelectQuote is very well
positioned for another year of strong revenue and EBITDA
growth.”
Chief Financial Officer Raffaele Sadun added, “Subsequent to the
quarter, we took advantage of favorable market conditions to secure
an additional $200 million of capital through a delayed draw term
debt facility. This capital gives us plenty of runway for the next
several years based on the guidance we gave last quarter on cash
flow progression.”
*See reconciliation from non-GAAP measure, Adjusted EBITDA, to
net income (loss) on page 11.
Segment Results
We currently report on three segments: 1) Senior, 2) Life and 3)
Auto & Home. The performance measures of the segments include
total revenue and Adjusted EBITDA.* Costs of revenue, marketing and
advertising, and technical development operating costs and expenses
that are directly attributable to a segment are reported within the
applicable segment. Indirect costs of revenue, marketing and
advertising, and technical development operating costs and expenses
are allocated to each segment based on varying metrics such as
headcount. Adjusted EBITDA* is calculated as total revenue for the
applicable segment less direct and allocated costs of revenue,
marketing and advertising, technical development, and general and
administrative operating costs and expenses, excluding depreciation
and amortization expense; gain or loss on disposal of property,
equipment, and software; share-based compensation expense;
restructuring expenses; and non-recurring expenses such as
severance payments and transaction costs.
Senior
Financial Results
The following table provides the financial results for the
Senior segment for the periods presented:
Three Months Ended September
30,
(in thousands)
2021
2020
% Change
Revenue
$
106,320
$
73,199
45
%
Adjusted EBITDA*
(32,971
)
8,902
(470
)%
Adjusted EBITDA Margin*
(31
)%
12
%
Operating Metrics
Submitted Policies
Submitted policies are counted when an individual completes an
application with our licensed agent and provides authorization to
them to submit it to the insurance carrier partner. The applicant
may have additional actions to take, such as providing additional
information, before the application will be reviewed by the
insurance carrier.
The following table shows the number of submitted policies for
the periods presented:
Three Months Ended September
30,
2021
2020
% Change
Medicare Advantage
95,789
47,991
100
%
Medicare Supplement
1,812
7,276
(75
)%
Dental, Vision and Hearing
28,604
20,042
43
%
Prescription Drug Plan
873
2,425
(64
)%
Other
3,562
1,883
89
%
Total
130,640
79,617
64
%
*See reconciliation from non-GAAP measure, Adjusted EBITDA, to
net income (loss) on page 11.
Approved Policies
Approved policies represents the number of submitted policies
that were approved by our insurance carrier partners for the
identified product during the indicated period. Not all approved
policies will go in force.
The following table shows the number of approved policies for
the periods presented:
Three Months Ended September
30,
2021
2020
% Change
Medicare Advantage
84,116
42,473
98
%
Medicare Supplement
1,398
6,325
(78
)%
Dental, Vision and Hearing
22,223
16,239
37
%
Prescription Drug Plan
868
2,632
(67
)%
Other
2,880
1,824
58
%
Total
111,485
69,493
60
%
Lifetime Value of Commissions per Approved Policy
Lifetime value of commissions per approved policy represents
commissions estimated to be collected over the estimated life of an
approved policy based on multiple factors, including but not
limited to, contracted commission rates, carrier mix and expected
policy persistency with applied constraints. The lifetime value of
commissions per approved policy is equal to the sum of the
commission revenue due upon the initial sale of a policy, and when
applicable, an estimate of future renewal commissions.
The following table shows the lifetime value of commissions per
approved policy for the periods presented:
Three Months Ended September
30,
(dollars per policy):
2021
2020
% Change
Medicare Advantage
$
978
$
1,168
(16
)%
Medicare Supplement
1,439
1,274
13
%
Dental, Vision and Hearing
152
168
(10
)%
Prescription Drug Plan
310
240
29
%
Other
111
135
(18
)%
Per Unit Economics
Per unit economics represents total Medicare Advantage and
Medicare Supplement commissions, other product commissions, other
revenues, and costs associated with the Senior segment, each shown
per number of approved Medicare Advantage and Medicare Supplement
approved policies over a given time period. Management assesses the
business on a per-unit basis to help ensure that the revenue
opportunity associated with a successful policy sale is attractive
relative to the marketing acquisition cost. Because not all
acquired leads result in a successful policy sale, all per-policy
metrics are based on approved policies, which is the measure that
triggers revenue recognition.
The Medicare Advantage and Medicare Supplement commission per
MA/MS policy represents the lifetime value of commissions for
policies sold in the period. Other commission per MA/MS policy
represents the lifetime value of commissions for other products
sold in the period, including dental, vision and hearing,
prescription drug plan, and other products, which management views
as additional commission revenue on our agents’ core function of
MA/MS policy sales. Other per MA/MS policy represents the
production bonuses, lead sales revenue from InsideResponse, and
updated estimates of prior period variable consideration based on
actual policy renewals in the current period. Total operating
expenses per MA/MS policy represents all of the operating expenses
within the Senior segment. The Revenue to customer acquisition cost
(“CAC”) multiple represents total revenue per MA/MS policy as a
multiple of total marketing acquisition cost, which represents the
direct costs of acquiring leads. These costs are included in
marketing and advertising expense within the total operating
expenses per MA/MS policy.
The following table shows per unit economics for the periods
presented. Based on the seasonality of the Senior segment and the
fluctuations between quarters, we believe that the most relevant
view of per unit economics is on a rolling 12-month basis. All
per-MA/MS policy metrics below are based on the sum of approved
MA/MS policies, as both products have similar commission profiles.
These metrics are the basis on which management assesses the
business:
Twelve Months Ended September
30,
(dollars per approved policy):
2021
2020
% Change
Medicare Advantage and Medicare Supplement
approved policies
526,212
271,199
94
%
Medicare Advantage and Medicare Supplement
commission per MA/MS policy
$
1,223
$
1,282
(5
)%
Other commission per MA/MS policy
37
48
(23
)%
Other per MA/MS policy
188
171
10
%
Total revenue per MA/MS policy
1,448
1,501
(4
)%
Total operating expenses per MA/MS
policy
(1,064)
(924)
15
%
Adjusted EBITDA per MA/MS policy*
$
384
$
577
(33
)%
Adjusted EBITDA Margin per MA/MS
policy*
27
%
38
%
(31
)%
Revenue/CAC multiple
2.8X
3.5X
Life
Financial Results
The following table provides the financial results for the Life
segment for the periods presented:
Three Months Ended September
30,
(in thousands)
2021
2020
% Change
Revenue
$
49,826
$
42,823
16
%
Adjusted EBITDA*
4,698
10,477
(55
)%
Adjusted EBITDA Margin*
9
%
24
%
Operating Metrics
Life premium represents the total premium value for all policies
that were approved by the relevant insurance carrier partner and
for which the policy document was sent to the policyholder and
payment information was received by the relevant insurance carrier
partner during the indicated period. Core premiums include term
life and permanent life insurance policies while ancillary premiums
include various smaller products. Because our commissions are
earned based on a percentage of total premium, total premium volume
for a given period is the key driver of revenue for our Life
segment.
*See reconciliation from non-GAAP measure, Adjusted EBITDA, to
net income (loss) on page 11.
The following table shows term and final expense premiums for
the periods presented:
Three Months Ended September
30,
(in thousands)
2021
2020
% Change
Term Premiums
$
15,510
$
18,855
(18
)%
Final Expense Premiums
34,052
19,817
72
%
Total
$
49,562
$
38,672
28
%
Auto & Home
Financial Results
The following table provides the financial results for the Auto
& Home segment for the periods presented:
Three Months Ended September
30,
(in thousands)
2021
2020
% Change
Revenue
$
7,469
$
9,538
(22
)%
Adjusted EBITDA*
1,374
3,616
(62
)%
Adjusted EBITDA Margin*
18
%
38
%
Operating Metrics
Auto & Home premium represents the total premium value of
all new policies that were approved by our insurance carrier
partners during the indicated period. Because our commissions are
earned based on a percentage of total premium, total premium volume
for a given period is the key driver of revenue for our Auto &
Home segment.
The following table shows premiums for the periods
presented:
Three Months Ended September
30,
(in thousands):
2021
2020
% Change
Premiums
$
13,258
$
16,900
(22
)%
*See reconciliation from non-GAAP measure, Adjusted EBITDA, to
net income (loss) on page 11.
Earnings Conference Call
SelectQuote, Inc. will host a conference call with the
investment community today, Thursday, November 4, 2021, beginning
at 5 p.m. ET. To register for this conference call, please use this
link:
http://www.directeventreg.com/registration/event/4041488.
After registering, a confirmation will be sent via email, including
dial-in details and unique conference call codes for entry.
Registration is open through the live call, but to ensure you are
connected for the full call we suggest registering a day in advance
or at minimum 10 minutes before the start of the call. The event
will also be webcasted live via our investor relations website
https://ir.selectquote.com/investor-home/default.aspx.
Non-GAAP Financial Measures
This release includes certain non-GAAP financial measures
intended to supplement, not substitute for, comparable GAAP
measures. To supplement our financial statements presented in
accordance with GAAP and to provide investors with additional
information regarding our GAAP financial results, we have presented
in this release Adjusted EBITDA and Adjusted EBITDA Margin, which
are non-GAAP financial measures. These non-GAAP financial measures
are not based on any standardized methodology prescribed by GAAP
and are not necessarily comparable to similarly titled measures
presented by other companies. We define Adjusted EBITDA as income
before interest expense, income tax expense, depreciation and
amortization, and certain add-backs for non-cash or non-recurring
expenses, including restructuring and share-based compensation
expenses. The most directly comparable GAAP measure is net income.
We monitor and have presented in this release Adjusted EBITDA
because it is a key measure used by our management and Board of
Directors to understand and evaluate our operating performance, to
establish budgets and to develop operational goals for managing our
business. In particular, we believe that excluding the impact of
these expenses in calculating Adjusted EBITDA can provide a useful
measure for period-to-period comparisons of our core operating
performance.
We believe that this non-GAAP financial measure helps identify
underlying trends in our business that could otherwise be masked by
the effect of the expenses that we exclude in the calculations of
this non-GAAP financial measure. Accordingly, we believe that this
financial measure provides useful information to investors and
others in understanding and evaluating our operating results,
enhancing the overall understanding of our past performance and
future prospects.
Forward Looking Statement
This release contains forward-looking statements. These
forward-looking statements reflect our current views with respect
to, among other things, future events and our financial
performance. These statements are often, but not always, made
through the use of words or phrases such as “may,” “should,”
“could,” “predict,” “potential,” “believe,” “will likely result,”
“expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,”
“intend,” “plan,” “projection,” “would” and “outlook,” or the
negative version of those words or other comparable words or
phrases of a future or forward-looking nature. These
forward-looking statements are not historical facts, and are based
on current expectations, estimates and projections about our
industry, management’s beliefs and certain assumptions made by
management, many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, we caution you that
any such forward-looking statements are not guarantees of future
performance and are subject to risks, assumptions and uncertainties
that are difficult to predict. Although we believe that the
expectations reflected in these forward-looking statements are
reasonable as of the date made, actual results may prove to be
materially different from the results expressed or implied by the
forward-looking statements.
There are or will be important factors that could cause our
actual results to differ materially from those indicated in these
forward-looking statements, including, but not limited to, the
following: the ultimate duration and impact of the ongoing COVID-19
pandemic, our reliance on a limited number of insurance carrier
partners and any potential termination of those relationships or
failure to develop new relationships; existing and future laws and
regulations affecting the health insurance market; changes in
health insurance products offered by our insurance carrier partners
and the health insurance market generally; insurance carriers
offering products and services directly to consumers; changes to
commissions paid by insurance carriers and underwriting practices;
competition with brokers, exclusively online brokers and carriers
who opt to sell policies directly to consumers; competition from
government-run health insurance exchanges; developments in the U.S.
health insurance system; our dependence on revenue from carriers in
our senior segment and downturns in the senior health as well as
life, automotive and home insurance industries; our ability to
develop new offerings and penetrate new vertical markets; risks
from third-party products; failure to enroll individuals during the
Medicare annual enrollment period; our ability to attract,
integrate and retain qualified personnel; our dependence on lead
providers and ability to compete for leads; failure to obtain
and/or convert sales leads to actual sales of insurance policies;
access to data from consumers and insurance carriers; accuracy of
information provided from and to consumers during the insurance
shopping process; cost-effective advertisement through internet
search engines; ability to contact consumers and market products by
telephone; global economic conditions; disruption to operations as
a result of future acquisitions; significant estimates and
assumptions in the preparation of our financial statements;
impairment of goodwill; potential litigation and claims, including
IP litigation; our existing and future indebtedness; developments
with respect to LIBOR; access to additional capital; failure to
protect our intellectual property and our brand; fluctuations in
our financial results caused by seasonality; accuracy and
timeliness of commissions reports from insurance carriers; timing
of insurance carriers’ approval and payment practices; factors that
impact our estimate of the constrained lifetime value of
commissions per policyholder; changes in accounting rules, tax
legislation and other legislation; disruptions or failures of our
technological infrastructure and platform; failure to maintain
relationships with third-party service providers; cybersecurity
breaches or other attacks involving our systems or those of our
insurance carrier partners or third-party service providers; our
ability to protect consumer information and other data; and failure
to market and sell Medicare plans effectively or in compliance with
laws. For a further discussion of these and other risk factors that
could impact our future results and performance, see the section
entitled “Risk Factors” in the most recent Annual Report on Form
10-K (the “Annual Report”) filed by us with the Securities and
Exchange Commission. Accordingly, you should not place undue
reliance on any such forward-looking statements. Any
forward-looking statement speaks only as of the date on which it is
made, and, except as otherwise required by law, we do not undertake
any obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future
developments or otherwise.
About SelectQuote:
Founded in 1985, SelectQuote (NYSE: SLQT) provides solutions
that help consumers protect their most valuable assets: their
families, health and property. The company pioneered the
direct-to-consumer model of providing unbiased comparisons from
multiple, highly-rated insurance companies allowing consumers to
choose the policy and terms that best meet their unique needs. Two
foundational pillars underpin SelectQuote’s success: a strong force
of highly-trained and skilled agents who provide a consultative
needs analysis for every consumer, and proprietary technology that
sources, scores, and routes high-quality sales leads. The company
has three core business lines: SelectQuote Senior, SelectQuote Life
and SelectQuote Auto and Home. SelectQuote Senior, the largest and
fastest-growing business, serves the needs of a demographic that
sees 10,000 people turn 65 each day with a range of Medicare
Advantage and Medicare Supplement plans from leading,
nationally-recognized carriers, as well as prescription drug plans,
dental, vision and hearing plans.
SELECTQUOTE, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(In thousands)
September 30, 2021
June 30, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
183,618
$
286,454
Accounts receivable
96,673
113,375
Commissions receivable-current
155,482
89,120
Other current assets
7,917
4,486
Total current assets
443,690
493,435
COMMISSIONS RECEIVABLE
748,190
756,777
PROPERTY AND EQUIPMENT—Net
38,525
29,510
SOFTWARE—Net
14,264
12,611
OPERATING LEASE RIGHT-OF-USE ASSETS
30,547
31,414
INTANGIBLE ASSETS—Net
39,432
40,670
GOODWILL
73,732
68,019
OTHER ASSETS
1,362
1,436
TOTAL ASSETS
$
1,389,742
$
1,433,872
LIABILITIES AND SHAREHOLDERS’
EQUITY
CURRENT LIABILITIES:
Accounts payable
$
28,495
$
34,079
Accrued expenses
22,836
20,676
Accrued compensation and benefits
43,648
40,909
Operating lease liabilities—current
5,355
5,289
Current portion of long-term debt
3,540
2,360
Other current liabilities
24,618
5,504
Total current liabilities
128,492
108,817
LONG-TERM DEBT, less current portion
458,652
459,043
DEFERRED INCOME TAXES
125,181
140,988
OPERATING LEASE LIABILITIES
37,186
38,392
OTHER LIABILITIES
6,446
11,743
Total liabilities
755,957
758,983
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock, $0.01 par value
1,639
1,635
Additional paid-in capital
549,034
544,771
Retained earnings
82,889
128,254
Accumulated other comprehensive income
223
229
Total shareholders’ equity
633,785
674,889
TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY
$
1,389,742
$
1,433,872
SELECTQUOTE, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
Three Months Ended September
30,
2021
2020
REVENUE:
Commission
$
134,651
$
106,545
Production bonus and other
25,272
17,624
Total revenue
159,923
124,169
OPERATING COSTS AND EXPENSES:
Cost of revenue
92,165
51,045
Marketing and advertising
90,677
49,800
General and administrative
23,392
12,202
Technical development
5,853
3,848
Total operating costs and expenses
212,087
116,895
INCOME (LOSS) FROM OPERATIONS
(52,164
)
7,274
INTEREST EXPENSE, NET
(8,535
)
(6,761
)
OTHER EXPENSE, NET
(102
)
(780
)
LOSS BEFORE INCOME TAX BENEFIT
(60,801
)
(267
)
INCOME TAX BENEFIT
(15,436
)
(1,104
)
NET INCOME (LOSS)
$
(45,365
)
$
837
NET INCOME (LOSS) PER SHARE:
Basic
$
(0.28
)
$
0.01
Diluted
$
(0.28
)
$
0.01
WEIGHTED-AVERAGE COMMON STOCK OUTSTANDING
USED IN PER SHARE AMOUNTS:
Basic
163,692
162,448
Diluted
163,692
165,192
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Loss on cash flow hedge
(6
)
(257
)
OTHER COMPREHENSIVE LOSS
(6
)
(257
)
COMPREHENSIVE INCOME (LOSS)
$
(45,371
)
$
580
SELECTQUOTE, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended September
30,
2021
2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
(45,365
)
$
837
Adjustments to reconcile net income (loss)
to net cash, cash equivalents, and restricted cash used in
operating activities:
Depreciation and amortization
5,103
3,347
Loss on disposal of property, equipment,
and software
350
82
Share-based compensation expense
2,215
924
Deferred income taxes
(15,807
)
(1,214
)
Amortization of debt issuance costs and
debt discount
862
822
Fair value adjustments to contingent
earnout obligations
—
759
Non-cash lease expense
994
911
Changes in operating assets and
liabilities:
Accounts receivable
17,336
14,361
Commissions receivable
(57,775
)
(45,942
)
Other assets
(2,957
)
1,790
Accounts payable and accrued expenses
(6,942
)
(8,718
)
Operating lease liabilities
(1,267
)
(995
)
Other liabilities
16,178
23,690
Net cash used in operating activities
(87,075
)
(9,346
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(7,824
)
(2,751
)
Purchases of software and capitalized
software development costs
(3,016
)
(1,585
)
Acquisition of business
(6,927
)
121
Net cash used in investing activities
(17,767
)
(4,215
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on other debt
(46
)
(68
)
Proceeds from common stock options
exercised and employee stock purchase plan
2,194
309
Payments of tax withholdings related to
net share settlement of equity awards
(142
)
(2,509
)
Payments of costs incurred in connection
with private placement
—
(1,771
)
Payments of costs incurred in connection
with initial public offering
—
(3,899
)
Net cash provided by (used in) financing
activities
2,006
(7,938
)
NET DECREASE IN CASH, CASH EQUIVALENTS,
AND RESTRICTED CASH
(102,836
)
(21,499
)
CASH, CASH EQUIVALENTS, AND RESTRICTED
CASH—Beginning of period
286,454
368,870
CASH, CASH EQUIVALENTS, AND RESTRICTED
CASH—End of period
$
183,618
$
347,371
SELECTQUOTE, INC. AND
SUBSIDIARIES
Adjusted EBITDA to Net Income
Reconciliation
(Unaudited)
Three Months Ended September
30, 2021
(in thousands)
Senior
Life
Auto & Home
Corp & Elims
Consolidated
Revenue
$
106,320
$
49,826
$
7,469
$
(3,692
)
$
159,923
Operating expenses
(139,291
)
(45,128
)
(6,095
)
(13,351
)
(203,865
)
Other expenses, net
—
—
—
(102
)
(102
)
Adjusted EBITDA
(32,971
)
4,698
1,374
(17,145
)
(44,044
)
Share-based compensation expense
(2,215
)
Non-recurring expenses
(554
)
Depreciation and amortization
(5,103
)
Loss on disposal of property, equipment,
and software
(350
)
Interest expense, net
(8,535
)
Income tax benefit
15,436
Net loss
$
(45,365
)
Three Months Ended September
30, 2020
(in thousands)
Senior
Life
Auto & Home
Corp & Elims
Consolidated
Revenue
$
73,199
$
42,823
$
9,538
$
(1,391
)
$
124,169
Operating expenses
(64,297
)
(32,346
)
(5,922
)
(9,518
)
(112,083
)
Other expenses, net
—
—
—
(21
)
(21
)
Adjusted EBITDA
8,902
10,477
3,616
(10,930
)
12,065
Share-based compensation expense
(924
)
Non-recurring expenses
(438
)
Fair value adjustments to contingent
earnout obligations
(759
)
Restructuring expenses
(21
)
Depreciation and amortization
(3,347
)
Loss on disposal of property, equipment,
and software
(82
)
Interest expense, net
(6,761
)
Income tax benefit
1,104
Net income
$
837
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